What is Cloud Accounting, And Why Should I Care?

Let’s start at the beginning. Before we get to Cloud Accounting, let’s ask “What is the cloud”? 

It might be easier to define what the cloud is not. The cloud is not your hard drive. Simply put, cloud computing means that you store and access data and programs over the internet instead of your local hard drive.

So basically the cloud is the internet. It’s a great metaphor for the giant infrastructure of servers that make up our world wide web.

Which is better? Well that’s always up for debate but since this is my article I’m going to say the cloud. The cloud is better. The rest of this article are some of my favourite arguments why.

It’s Accounting Software for a New Century

Now that you know what the cloud is, let’s talk about cloud accounting. Using our definition of the cloud, cloud accounting is your accounting system – not on your hard drive.

Here’s a great definition from Hubdoc, “Traditionally, accounting was executed using software hosted locally on a desktop computer’s hard drive (e.g., Quickbooks Desktop). Cloud accounting, on the other hand, is accounting that is executed using software that is hosted remotely on the cloud – i.e., online.”

Every application of the software is performed off-site, not on your desktop. This allows for so much more freedom, you don’t have to be in a specific location on a specific machine. In the cloud, your accounting systems are available from anywhere with a device capable of accessing the internet.

You might be thinking, is that it? It’s just my accounting system software online instead a local hard drive. Well basically yes. But there are a lot of reason’s why that’s a really big improvement over the previous way of doing things.

With Better Security for your Data

One of the biggest concerns I get from small business owners about cloud accounting revolves around security. Good news. Cloud accounting software uses encryption to send and store data.

What does this mean? Basically all of your information gets rewritten into a secret code. A top secret unbreakable code. Just like the security used to make online banking safe.

Let’s go a step further. The computers in your office are not safe. They are terrible places to keep valuable information. Unless you are in the habit of doing nightly offsite backups.  I know you aren’t, yes I’m psychic on this topic.

Local storage poses two big problems:

1. No redundancy in local storage. That means backups. Those are important because your computer is subject to viruses, environmental damage, theft, etc. If all your data is on that machine only, you’re in trouble.
2. Local security is super weak. I mentioned viruses, but there’s also ransomware. Unless you happen to own an IT consulting business I’m guessing you’re not employing the latest security on your local machine. What about break ins? There’s an old saying, “everyone with a brick has copy of your office key.”

There are still security concerns with cloud accounting systems. You need to guard your passwords with your life. And any disruption in internet service means you’re locked out of your data. But, the cloud does mean that you data is much better protected than it would be if stored on a local hard drive or server.

This brings us to another great advantage of cloud accounting systems. Real-time access to your business information.

More Accurate, Real-time Information for Your Business

 How do you make better decisions in your business? By using better information. Very few business owners can just intuitively make the best decisions for their business. Give me good data over my gut any day of the week!

One of the best things about cloud accounting software is it can give you great insights on your financial health. Right now, in real-time. Most manual, or desktop systems don’t get updated till the end of the year. By that time, you’ve missed the opportunity completely.

Let’s say you run a plumbing business. You’re at an emergency home call and you’ve diagnosed the customers problem. Now imagine you pull out your phone and you can see that you’ve got the parts and materials needed in inventory. And you can create an estimate for the repair right their. The job is finished and you convert your estimate to an invoice that is emailed to your customer and they pay on the spot.

This simple example happens everyday for some of our clients and thousands more out there. Imagine your cashflow when you can bill the work from your phone and collect payment just as quickly. Good news, your books are updated to reflect the payment, the inventory and everything else before you get back to the shop.

Real-time business information means you spot trouble before it’s fatal. Allows you to take advantage of opportunities before they disappear, and keep your cash flow current. Making better decisions will lead to improvements in customer service and profits.

Let’s talk about another way cloud accounting saves you time, no more software updates.

No More Tedious Software Updates

Here’s a truth I’ve learned over the years. Most accounting software requires a lot of updating. It’s the nature of the beast. Things change every year and the software companies are trying to stay relevant and useful. 

Cloud accounting software gets updated all the time. But you don’t have to be the one doing it. If you’ve ever been responsible for doing these back ups you know the joy that last sentence can bring to a person’s heart.

In house developers are constantly working to improve and keep up with new legislative or other changes. The updates happen regularly without much notice from the user. And the updates are free, included in your monthly subscription. And yes, even desktop software is moving to monthly subscription pricing.

I think it’s really important for you to think of the benefits that this time-saving feature provides you. Small business owners don’t have a lot of free time. And manual updates are a huge time waster. This also leads us to another great time saving feature of cloud accounting – Automation. 

You’ll Save Time & Money with Automation

How much time do you waste creating and then chasing after invoices? How much time do you spend inputing expenses or your bank and credit card statements? Payroll, HR, it all starts to really add up.

Cloud based accounting tools are designed to let you create automated workflows and processes that save you time. Stop chasing your customers and start working with them without the hassle of all that bookkeeping you’ve been used to.

Do you have clients that you bill monthly? You can set up recurring billing that goes out automatically, or after you have the chance to approve it. Set automatic payment notices and reminders to save time on your Accounts Receivable. Connect your bank and credit card accounts so that your system has your latest banking information automatically.

Best of all there are so many applications that help your cloud accounting system run even more effectively. Take pictures of receipts and have them applied automatically to your expenses. Set up your vendors so that invoices are automatically entered as well. Automate your payroll and the government taxes and compliance reports that go with it.

The list of automation opportunities is long, probably work at least another entire article. You owe it to yourself to find out just how much you could be saving in terms of time and money. And since time is money, the benefits just keep piling up. 

Now, let’s talk increased teamwork and collaboration.  

Improve Your Collaboration and Teamwork

I’ll bet you’re not a fan of tax time or your year end. Maybe you are, there has to be someone. For most business owners it’s a stressful time of year. Not only is it expensive because of potential tax owing, there’s so much work to do to get your financials statements from the accountant.

One of the reasons this time of year is so stressful is because a lot of business owners are completing 12 months of bookkeeping in a few short weeks. That’s not fun for anyone, including your accountant.

I’ll let you in on a little secret, when your books are up to date and have been kept up all year long tax time is easier. And when the tax filing process is smoother your accountant doesn’t have to work as hard keeping you compliant. What I’m trying to say is that this should help you save money on your bill. 

 Working with your accountants and business advisors, or your colleagues becomes extremely straightforward when you’re based in the cloud. 

Cloud accounting tools allow you to add other employees, your accountant and other advisors. This way, they can be alerted to changes in your business as well. Imagine your accountant able to see a cash flow problem coming before you do and helping you before it’s too late.

Cloud accounting also unleashes you from the office or your place of business. Because you can easily see what’s going on from anywhere, you get more freedom. Now you can go to that conference of training event that can help you move your business forward. 

 You’ll be able to work smarter, not harder.

So You’ll Be Able to Work Smarter, Not Harder

Very few people go into business for themselves because they love bookkeeping or accounting. But it’s a critical component of any successful business. You can struggle to maintain an excel spreadsheet and a shoebox of receipts. Or you can use the latest cloud accounting tools.

It’s been said that a successful business needs three things:

• Adequate cash
• A competent accountant to work with the numbers
• A system that can show at a glance the financial position of the business

Modern cloud accounting systems are all about helping you have these three conditions. When you have an accounting system that provides you with the right information at the right time, you make better decisions. When you make better decisions, you make more money.

But why spend and extra hour, or two, or ten every week managing your accounting if your accounting system can do most of the heavy lifting. You are the expert at running your business, do that. Let your cloud accounting system and your accountant work together to help you do that.

Now, let’s talk about the bottom line.

And Benefit From Lower Cost of Ownership

How can a cloud accounting system help you lower your cost of ownership?

Well first, you’ll be able to save all kinds of money on hardware. Servers, hard drives, IT consultants and security systems all have a pretty hefty price tag. The cloud allows you to ditch most of these, you get them all with just secure link to the internet. and you get to spread the payments out on a monthly basis. Hello cash flow.

Another great feature is that when your business is just starting out, you can start small with your cloud accounting system as well. Many systems start at $15 to $20 per month. As your needs increase you’ll be able to grow and scale the system as well. 

Cloud accounting systems don’t make you invest in a big upfront charge either. And I’ve set to see one that locks you into a contract. If it’s not working for you, you can stop and try somethings else.

One of my favourite savings features is built in tech support. For your small monthly payment, you have some pretty great tech support just a phone call, email, or web chat away.

Finally, think about how much money your business could save by moving towards a more paperless operation. How much paper do you store every year? How much do you spend on postage and printing? If you’re like most, it’s not an insubstantial amount. Cloud accounting can help you start to move to a more sustainable model.

Conclusion

I’ll admit it right now, I’m pretty biased when it comes to cloud accounting tools. Part of my appreciation for them comes from personal experience.

When I was runing my own businesses, I dreaded tax time. Mostly because I knew I was unprepared and I was going to have to face some marathon data input days. Just thinking about my receipts and getting my expenses in order would cause me to break out in a cold sweat. I tried enlisting my spouse, that just made her mad at me and didn’t really help solve the problem.

Finally I took the advice of a trusted advisor and enrolled in a cloud accounting system. An app on my phone now took pictures of every business receipt when I got them. Gone was the according file of doom, replaced by a clean expense report.

Late GST and tax filings were replaced with a much smoother process. My accountant didn’t run from me anymore and my costs for filing actually went down for the first time. Your experience might not be as bad as mine, it could be worse. Whatever the case, I hope you’ll take the time to look into cloud accounting for your business. If so, we’d love to help.

Jim Brown is the Firm Administrator at Price & Comin LLP. He wears many hats at the firm, one of which is marketing and spends part of his day maintaining the website (which he designed & built) and creating Educational blogs and programs to help our clients with their finances and their businesses. Jim is a graduate of the school of life (and a couple of Universities), learning from businesses he has owned and operated over the years. If your business could use help with marketing, strategy & planning, or human resources contact him at jim.brown@pricecomin.ca for a chat.